QROPS update 12th May 2011 Pension Foreign exchange QROPS and QNUPS

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, QROPS and now QNUPS (Qualifying non UK Pension schemes).

Yesterday’s trading saw a quite dramatic rally in the value of the pound. A number of key

economic indicators, coupled with more hawkish comments that expected from the

Governor of the Bank of England served to fuel a 1.41% increase in the rate of the pound

and against the euro in particular. Sterling was not so boisterous against the dollar, ending

UK trading in the red at $1.6365 having dropped from the day high of $1.6517.

The improvement in the pound was fortified by profit takers rushing to short the euro after

Mervyn King’s briefing. The ECB’s non-committal approach to interest rate increases earlier

in the month also paved the way for the pound to consolidate a fractional improvement

after the weekend. King confirmed that despite the forecast on inflation increasing to 5%

for this year, the bank will not act quickly to increase rates. The CBI expresses the view that

the fading away of the effects of January’s VAT increase should see inflation ‘ease back

towards’ the target rate of 2% throughout next year. Whilst optimistic, this does not

address the question of economic growth, and as Alastair Darling, former Chancellor of the

Exchequer, was keen to emphasise, any increase in inflation even in the short term with

continue to harm the domestic economy and could seriously destabilise the rate of recovery.

The outlook for growth dropped to 2.7%, but King expects that certain previously

unaccountable or unforeseeable market forces, such as oil price spikes, will relax over the

course of the year leading to a natural correction.

The pound began the morning at a price of $1.1359, reaching a high of $1.1519, and closing

at $1.1514. Although achieved at short notice and following unimpressive data earlier in the

month, the breach of $1.15 is in line with both HSBC’s and Lloyd’s forecasts for GBP/EUR at

stage in the annual cycle.

The euro made gains against both USD and JPY over the course of the afternoon. Against

the yen the single currency lost 1.5% in value with a low of 114.78.

With a deluge of US related information primed for release just after midday (GMT), the

markets are likely to remain choppy until the end of the week. Producer Price Index, Retail

Sales and unemployment claims will all be complemented by the testimonial of Fed

Chairman Bernanke at 3.00pm.

Manufacturing figures from the UK are likely to show a fractional increase in domestic

activity, but with demand expected to remain low into the longer term, it would seem that

any growth or contraction in the sector will do little to affect the value of the pound. If

anything, the 0.3% forecast growth serves to emphasise and support Mervyn King’s

sentiments today.

IN THE UK

• Bank of England inflation report more hawkish than expected, growth forecast lower but inflation set to break 5.0%
• With inflation set to rise to 2.5 times the government’s target, King suggests interest rate rises are back on the agenda and bets move to a 3^rd quarter rise rather than December as previously price in.
• The pound sees significant gains against the euro breaking €1.15 as interest rate differential speculation between the UK and Eurozone seems to have gone full circle as the ECB become less definite moving forward.
• The outlook for growth dropped to 2.7%, but King expects that certain previously unaccountable or unforeseeable market forces, such as oil price spikes, will relax over the course of the year leading to a natural correction.
• GB Trade Balance deficit widens by -£0.7B, data released showed -£7.7B although exports have risen.  

ELSEWHERE

• Commodities struggle and Oil falls 5.0% overnight, dropping below $100 a barrel, will we see this at the pumps? Very unlikely!
• Poland surprised the markets and increased their interest rates to 4.25%
• One day strike in Greece brings country to a standstill, and concerns still stand that a default/restructure could be a major threat to global stability.
• “Anti-bailout” Finland appear to agree to terms of Portuguese bailout which can only be good for euro stability.
• EUR/USD drops to lows of $1.4189 on risk aversion and the euro loss of 1.5% in value against the Yen with a low of 114.78.
• Spanish earthquake to put further stress on ailing domestic market.
• USD trade balance released as -48.5B against -46.8b expectation, slightly better than expected but nothing to celebrate.
• Australian employment data much worse than expected as employment drops by 22k after last month’s gains of 43k 

DATA TO LOOK OUT FOR

• Busy day for data announcements starts with the ECB Monthly Report at 9.00am, the report will reveal a detailed analysis of the prevailing economic situation in the Eurozone, there’s unlikely to be too many surprises after the ECB press conference on Thursday
• 9.30am sees the release of Industrial and Manufacturing Production figures in the UK, the markets are expecting to see a rise in both numbers and this could help the pound after yesterday’s inflation report.
• European Industrial Production figures are released at 10.00am
• 1.30pm focus turns to the US where Retail Sales and Producer Price Index figures are published, retail sales are expected to rise slightly which should help the dollar, whereas PPI is expected to fall and will push back chances of a US rate rise, hurting the USD
• Fed chairman Ben Bernanke speaks at 3.00, his words are closely followed by investors
• NEISR UK GDP Estimate for the 3 months leading up to April are released at 3.00pm and will give an indication of what the next official GDP figures might look like. 

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

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